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Jianpu Technology Inc. (JT) Q2 2019 Earnings Call Transcript

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JT earnings call for the period ending June 30, 2019.

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Jianpu Technology Inc. (JT 2.40%)
Q2 2019 Earnings Call
Aug 26, 2019, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Hello and welcome to Jianpu Technology, Inc's Second Quarter 2019 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Liting Lu, Jianpu's Investor Relations. Please go ahead.

Liting Lu -- Investor Relations Manager

Thank you, operator. Please note the discussion today will contain forward-looking statements relating to future performance of the Company. These statements are within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act.

Such statements are not guarantees of future performance, and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the Company's control, and could cause actual results to differ materially from those mentioned in today's press release and this discussion.

A general discussion of the risk factors that could affect Jianpu's business and financial results is included in certain filings of the Company with the Securities and Exchange Commission. The Company does not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures, and a reconciliation of GAAP to non-GAAP financial results, please see our second quarter 2019 earnings press release issued earlier today via wire services and also posted in the Investor Relations section of our website. As a reminder, this conference is being recorded. A live webcast and the replay of this conference call will be available on the Jianpu website at

Joining us today on the call from Jianpu's senior management are Mr. David Ye, Co-Founder, Chairman and Chief Executive Officer, and Mr. Oscar Chen, Chief Financial Officer. I will now turn the call over to Mr. Ye, who will provide an overview of the Company, as well as performance highlights of the second quarter.

Mr. Chen will then provide details on the Company's financial results and business outlook before opening the call for your questions.

Mr. Ye, please go ahead.

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Thank you, Liting. Hello, everyone, and thank you for joining us on our call today. So we continue to accomplish our mission to become everyone's financial partner. We feel positively about the long term outlook of the digital transformation of China's retail financial services industry. To balance this perspective, over the short and medium term, China's retail financial services industry is currently being shaped by a mix of uncertain macro economic environment, heightening regulatory policies, the rapid pace of digitalization in the society and an increasing demand for access to financial products and services by consumers and SMEs.

As the largest independent open platform for discovery and the recommendation of financial product in China, Jianpu's mission is to become everyone's financial partner by empowering users to make smarter and better choices and enabling financial institutions to make better digital marketing, big data and the risk management and integrated solutions.

This is very important as Jianpu's open platform model is well positioned to capture these macro trends and the secular growth to serve both consumers SMEs and the financial service providers, who provide a full inspection of financial products and services. To give the market a sense of what's happening in China's retail financial services industry, we would like to provide a macro view of what we are seeing and why Jianpu's businesses is at the forefront of driving transformation to better serve Chinese consumers and SMEs. China's economy grew at a lower pace amid uncertain global macro environmental factors. From the supply side of the retail financial services sector, liquidity remains weak for consumers and SMEs.

As financial institutions tightening their credit policies and their risk management practices, access to financial products and services is getting harder for consumers and SMEs in some credit segments, demographic and geographical areas.

For the first half of this year, some of the 20 top -- some of the top 20 credit card issuers tightened their credit policy, slowed down acquiring new customers only extended the credit to existing customers and organic customers. Peer to peer lenders follow regulatory guidance, switching from retail individual funding to wholesale institutional investment funding.

Top P2P lenders slowed down new acquisition and market expansion. For the mortgage sector, Tier 1 cities such as Shenzhen, Shanghai, we have seen mortgage rates have declined recently. However, most of the Tier 2 cities such as Suzhou, Dalian, Hangzhou, Wuhan, Changsha mortgages rates are increasing. We have seen personal mortgage applications are not growing as fast as before.

It is more difficult for potential co-owners to get a mortgage approved by banks in some cities. On the other hand, demand from consumers and SMEs remained strong in these uncertain economical environment. Total number of credit cards and the bank cards issued as of the end of Q1 reached 690 million and the average number of credit card reached 0.49 and we expect this trend to continue in the future. We do see rising demand in SME financing, auto financing, wealth management and the insurance sectors.

The government authorities are tightening grip in some financial regulations, but relaxing others -- other sector regulations. Since the government announced and clarified P2P rules and the guidance last quarter, the P2P industry consolidation has been intensified and will be expedited in the next two quarters.

By the end of July, number of P2P platform has concentrated down to 997 platforms. Top P2P lenders with diversified funding sources supported by wholesale institutional investors will be least impacted and they will recover their businesses rapidly.

On the other side of the regulatory environment, the government is pushing for interest rate liberalization, increasing the liquidity to small and medium sized enterprises. We also have seen government increasing liquidity to SME consumers and also want to support the real economy, encouraging competition among financial institutions.

Also, there are more loosening rules and regulations for foreign investors to set up lending, payment, insurance and other domestic or financial service entities. Notably, recent launch of LPR, loan prime rate by China's central bank will enable lenders their interest rates more freely. It is a very good move expected to bring borrowing costs lower at a time when the economy need a boost.

Most recently, the central government promulgated a new guidance to nurture a digital platform economy in China, highlighting the important role of a digital platform in stimulating economic growth. In this uncertain period, not all financial institutions share the same view in terms of risk or have a similar risk appetite. To mitigate the risk and uncertainty in the short term and to capture the industrial growth in the medium to long run, we are seeing increased investments and spending by banks, license the financial service providers and the fintech players who are relying on artificial intelligence, data science, digital cloud computing to enhance the growth and improve risk management capabilities of the retail banking businesses.

Last year, large commercial banks increased the investment in technology to RMB112 billion of which RMB42 billion was invested in fintech applications. Long term prospects for industry remained extremely promising, as JT is uniquely positioned, supported by technology, data assets and FSP network to capturing on the growth of the digital financial services industry.

Just moving to our quarterly performance summary, we saw strong credit card revenue growth of 25% year-over-year outpacing peers, even though the credit card market was relatively slower, first half of this year compared to the second half of 2018. Credit card volume from both recommendation services and advertising reached approximately 1.9 million in Q2.

This growth reaffirms our capabilities to capture the evolving dynamics of the market. As we look into the drivers behind the growth in the credit card recommendation businesses, from the bank, the credit card issuers standpoint, the number of bank partnership increased to 28 in Q2 from 25 in Q1.

We are now partnering with 16 out of 18, largest state-owned banks and joint stock commercial banks nationwide in total. The average number of cards issued on Jianpu's platform per month reached over 600,000. Currently, more than 40% of the credit card volume are generated through social media, MCN or multi-channel network marketing initiatives, leveraging short video content reaching mini program and other strategic partners, this technology driven financial products such as China Unionpay Mobile QuickPass.

We have seen more and more users coming from second, tertiary, fourth tier or less affluent cities and in new urbanizing areas. The economy of those lower tier or less affluent cities actually grow faster than the major metro cities. Consumption are stronger. From credit risk perspective, less affluent cities have more affordable houses, consumer finance burden is lower, consumer's ability of servicing their debt are much better compared to those consumers living in major metro cities.

Financial institutions such as credit card issuers actually are capturing the secular trend by providing innovative digital banking products to less affluent cities in the younger Generation Y and the Generation Z. Another big secular trend in China's retail financial service sector is the adoption of big data, artificial intelligence, cloud computing and digital and in the future, 5G will transform how financial service provider is communicating and marketing to their consumers, managing risks and servicing them. We have been investing in those areas in the last couple of years and have seen strong growth into the second quarter, continuing to deliver triple digit year-over-year growth.

We expect as the growth momentum will continue in the future. SkyKey or [Indecipherable] our branded Big Data and risk management service, is deployed on a software-as-a-service model, tailored for demand across different type of financial service provider with the right range of needs from credit decisioning, fraud detection, risk moderating and other risk management decisionings.

At present, there are more than a thousand paying financial service providers within our SkyKey platform. FSPs can adopt SkyKey's for solutions or choose one or several specific module to meet their sales and marketing risk management decision they need. Given the strong demand that -- for our services, we have enjoyed a high growth, we have seen the ramping up of average spending through financial institution.

We have also seen a high retention rate among financial institutions. At the same time, we have actively developed a more diversified data ecosystem through the exploration of deep financial and a non-financial data analytics continuously optimizing our proprietary technology and further improving upon our risk management product and better improving credit risk models.

As of current SkyKey, we have just achieved ISO 27001 certification and CMMI 3 certification, validating our commitment to implementing effective security to protect the consumers and partner information and data. We are dedicated to helping customers mitigating risk while providing industry leading products and services to better serve their evolving and challenging needs in this environment.

Before we go into the financials, we just want to continue our update following the [Indecipherable] event and its subsequent mobile application relaunch. As of the end of last week, our mobile apps are available on all app store now. We took the time to conduct a comprehensive internal review and continuously drive certain self-imposed improvement in terms of internal process in regarding to FSP onboarding procedures and ongoing monitoring and supervision.

We have implemented the necessary risk control to better protect the users from participating in products that are out of the scope in terms of industry standard. Being the leading players in this market, we have also been invited by the regulators to participate in developing industry standards and promote industry best practice, including defining guidance for digital, financial platform, corporate responsibility and product standard as well as consumer rights protection.

However, the event did have a big impact last quarter due to that our mobile app were unavailable for a long period of time. Our long recommendation businesses was handicapped with disappointing results. That may also impact the coming quarter given the later than expected relaunching schedule, as well as time for us to recover before we kind of fully optimize our scale and efficiency.

For the second half of 2019, we will continue investing in our capabilities and infrastructure of technology, data science, AI capabilities and our people to better serve banks and other financial service providers. We will focus on a balanced operational strategy striking to achieve better operating efficiencies on smart scale, including optimizing user acquisition strategy, deep cultivating relationship with the banks and other financial service provider, as well as streamline our organization.

As we shared in previous earnings call, we are committed in exploring the new initiatives in terms of a financial product category expansion and the global opportunities. Leveraging our strong technological capabilities and a strong relationship with financial service providers, we are exploring and testing market segments related to wealth management, financial contents and the tools.

Recently, we acquired a Hong-Kong based law and credit card recommendation platform. We plan to use the Hong-Kong platform as a starting point to explore cross-border opportunities. We can share information about our cross border plan in the next one to two quarters.

There is a huge untapped potential in China's retail financial service industry, as artificial intelligence, data science, cloud computing, digital and a five generation of telecommunication, transforming the financial service industry and potentially changing hundreds of millions of people's life in China and worldwide.

We strongly believe that Jianpu is well-positioned and remains a leader and innovator in this industry with strong technical capabilities, massive volume of valuable data and an unique open platform model connecting over 100 million consumers and 2,000 financial institutions.

Our team maintained a positive view toward the end of the year and in the medium to long run. With that, I now turn the call over to our CFO, Oscar Chen, who will discuss our financial results.

Yilu Chen -- Director and Chief Financial Officer

Thank you, David, and hello, everyone. Our results in the second quarter fairly reflect the challenges and the uncertainties we are facing, as well as our efforts and the performance. The performance varies among business lines impacted by the voluntary suspension of app downloads since mid-March. Our loan recommendation suffered a significant year-over-year decrease in the second quarter.

However, our credit card recommendation and the big data and the risk management services were less impacted. We are pleased that the press -- the credit card business remains strong as we keep up with the optimization of our product offering mix on current conditions.

We are also confident that our big data and the risk management services are in strong demand by the banks and other financial service providers. As discussed in the last earnings conference call and as a result of our voluntary suspension of the mobile app downloads for our internal review since mid-March, we expected a negative impact on our financial results.

For the second quarter, we reported total revenues of approximately RMB362 million, a decrease of 26% year-over-year, and the non-GAAP adjusted net loss of approximately RMB57 million, as compared to an adjusted net loss of RMB29 million in the year ago period. Total recommendation services revenues decreased by 32% year-over-year to RMB300 million in the second quarter due to a 65% year-over-year decrease in loan recommendation services, offset by a 32% year-over-year increase in credit card recommendation revenues. Combining the credit card business from both recommendation and services and advertising, we recorded credit card volume of approximately RMB1.9 million in the second quarter of 2019, representing a year-over-year increase of approximately 19%.

The average fee for credit card increased to RMB107 from RMB99 in the second quarter of 2018. As a result, revenue for credit cards for recommendation and advertising services in the second quarter increased by 25% to RMB202 million, from RMB162 million in the year ago period. Among the revenues generated from advertising and marketing -- marketing services and other services, our big data and the risk management services remained in strong demand among financial service providers, growing 139% year-over-year to RMB50 million as this segment of customers seek out for our big data and the risk management services.

In the positive top quarter, given the weak sentiment of top line, which were negatively impacted by the voluntary suspension of app downloads and other industry dynamics, we conducted a couple of adjustments aiming to maintain our operational efficiency, including organizational change, cutting off low efficiency business and etc.

However, such adjustment has certain lagging effect, the benefit of which may take a digging in later quarters. At the same time, we continued our commitment in exploring new initiatives as David mentioned earlier, which resulted in some upfront investment in people and the technology. As such, our efficiency level measured by various expenses line items as a percentage of revenue were not performing well in the second quarter of 2019.

We strive to maintaining a balanced strategy with profitability and margins in minds. Gross margin increased to 93% in the second quarter of 2019. Sales and marketing expenses, excluding share-based compensation as a percentage of revenues was 87% in the second quarter of 2019, compared with 85% in the year ago period.

Our R&D expenses excluding share based compensation increased by 46% year-over-year to RMB68 million [Phonetic]. R&D expenses as a percentage of revenue rose to 19%. Our G&A expenses, excluding share based compensation, increased to RMB20 million in the second quarter from RMB15 million in the same period of 2018.

G&A expenses as a percentage of revenue rose to 6%. As a result, our non-GAAP adjusted net loss which excluded share based compensation was RMB57 million in the second quarter of 2019 and the net loss was RMB85 million. At the same time, non-GAAP adjusted EBITDA was a loss of RMB51 million compared to a loss of RMB36 million in the year ago period.

As of June 30, 2019, we maintained a strong balance sheet and cash position with cash and the cash equivalents, restricted time deposits and short-term investments of approximately RMB1.2 billion and the working capital of approximately RMB1.2 billion.

A quick review of our share repurchase program. Starting from August 2018, our Board approved the share repurchase program with a total authorization of $30 million. As of August 25th, 2019 the Company has repurchased approximately $29.7 million of shares under this program.

And last, for the guidance, the Company anticipates the external environment to remain uncertain and a challenge in the third quarter. Although our app has been fully relauched and available in all app stores, the impact from the voluntary suspension may also have some lagging effect into the coming quarter.

Based on the Company's current estimates, we expect our total revenues for the third quarter of 2019 to be approximately RMB300 million to RMB320 million. With that, I will conclude our prepared remarks. We will now open the call to questions. Operator, please kindly go ahead.

Questions and Answers:


Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from John Cai with Morgan Stanley. Please go ahead.

John Cai -- Morgan Stanley -- Analyst

Hi, management. Thank you for taking my questions. So I have three questions. The first one is on the guidance. I think that this revenue guidance seems to imply a quarter-on-quarter decline. So just wonder what sort of external environment uncertainty that would lead to that? Do you see a weakening lending activities from financial institutions and some [Phonetic] lenders. It seems that we already relaunched the app, it -- we should expect that to increase on a sequential basis in terms of the revenue?

And my second question is about the second quarter sales and market, and I think most of the second quarter our app is not available. Just wonder why there is over RMB300 million sales and marketing expense here and the ROI obviously deteriorated, I think -- can the management share more colors about the portion of organic users and customer acquisition costs and the conversion rates and how do we see in second half?

The final question is about cash. It seems we have some Q-on-Q decline on cash, and also David mentioned some investment, just wonder -- and based on the revenue, it seems the third quarter could also be a challenging quarter. So just wondering how you see the cash positioning going forward.

Thank you very much.

Yilu Chen -- Director and Chief Financial Officer

Okay. Thank you, John. I will take the -- take the -- to answer your questions first. So, yeah, I think, regarding the guidance we provided for third quarter, it's still a bit, I think disappointing, but we do see some uncertainties and the challenges in terms of the external environment.

So as we mentioned in our last conference call, we expected that the second quarter given the our application -- our mobile apps were not online, so we would suffer a decrease in terms of the top line entering to the -- but we also mentioned that entering to the third quarter when we got our apps relaunched, we still need to spend quite some effort to optimize our acquisition strategy, our operating strategy to achieve a balance between the scale and efficiency.

So firstly I think, you know, I think firstly I can give an update about our app relaunch. So the app relaunch is almost a one-month behind our schedule. So we've got -- we our apps relaunched in August, in May in the mainstream medias like Tencent Baidu and [Indecipherable] in June. And the OEM app store through July to August.

So firstly, I think the relaunch schedule is a bit -- the relaunching is a bit behind our schedule. So that may have some impact on the -- on the third quarter performances. And also I think in terms of the optimization of our acquisition and operational strategy, we are seeing -- we are seeing the, you know, the external market challenges and uncertainties. So that translate -- that translates into, you know, even though we want to burn some cash to scale up our business, but it may not be justifiable.

So we still want to keep a balance between the scale and efficiencies. And in addition, I think the challenges and uncertainties is more at the micro economic and the regulatory environment. So in this -- with this observation, so we will have to -- we have more efficiency and scale in the second half of this year.

I think David already talked about some challenges we are seeing outside -- we are seeing in market -- into the market, including tightening of credit policy from the financial service providers and the overall liquidity. I think, the social liquidity level is slow than we -- the growth is slow than we expected.

So, I think this is what impact us in the short-term, particularly in the third quarter. But we are more optimistic in the medium to long run given our resilient business model and the robust technology infrastructure. I think --

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Hi, John. This is David, I'd like to answer your first and third question, just to add up a little bit for -- to what Oscar has said. So cash position, we have about RMB1.2 billion, that's roughly the number. We did lost -- we had a lost quarter, right?

We burned around RMB56 million last quarter, right, that's why our strategy for Q3 is smart growth, smart scale, right? I mean, if you look at the three segments, the big data, the risk management, we're going to have a strong growth.

However, last segment only accounted for roughly 20% of the revenue, right -- 15% to 20%. So we have a high double-digit growth that doesn't add much. The credit card business we believe is going to have a good Q3. However, we do see some there's a summer effect -- a little bit of summer flow for one of the two big banks.

So, the challenge, of course last quarter was loan recommendation businesses. We did not achieve the operating efficiency we would like to. We lost the money mostly in that segment. That's why in Q3, our strategy is really optimizing of our efficiencies. Just think that we have a car, we shut down for a couple of months, we missed out the engine, right, we need to achieve the optimal fuel efficiencies, right?

We're not going to try to get the revenue scale and losing money. So, that's why the management, we have made a decision, we want to further improve the operating efficiency in the loan recommendation businesses. We lost some revenue, but of course, we're going to reduce the net income kind of impact, yeah.

So that's the add up for questions one and three. It answers your question three as well, right? So we want to answer it? [Speech Overlap]. John?

John Cai -- Morgan Stanley -- Analyst

Yeah, then I have questions about ROI, that's in -- on the second quarter seems the sales and marketing is still big, given that we -- our app is not available for the majority of the quarter. So just wonder why is that, in terms of ROI, organic traffic and conversion rates, customer acquisition costs, etc.

And also David mentioned about efficiency improvement, just wonder how you see the ROI in the second half. Thank you.

Yilu Chen -- Director and Chief Financial Officer

Yeah. Thank you, John. I think to your question, although, you know, our apps were not available for downloads during the second quarter, but you see, we still grow our credit card business relatively nicely in the second quarter.

So for these business lines, firstly, I think there were also some impacts from the sale. So in that sense, we got a quicker relaunch and a recover of the bank's relationships to get the credit card products back online. In that sense, you know, we may not -- we may not be able to get to the banks at the price. Although you are seeing, you know, a year-over-year unit price increase. But we don't think it's the best price we can get for now, particularly under the current environment.

So for credit card business, I think the ROI is -- to quickly recover this business, I think the ROI is a little lower than we expected. For the loan recommendation, of course, your guess is correct. You know, we have repeat users, we have our, you know -- we still, although the app is not online, but we still have the users who have already had our app who can submit the loan application through our platform.

Firstly, you know, the repeat user because of the fail [Phonetic] the app is not available. So I don't think the data can tell, the data itself can tell the story. We have the repeat users, we have relatively higher ROIs from the loan recommendation. But again, to keep the scale as it is, we still need to spend some marketing dollars to do the -- to do the user acquisition through the mobile app, through the PC channels to keep the user activities and also to keep the scale of our business.

So regarding the percentage of returns, I think it's higher than any quarter before. But I don't think the number here is relevant to telling the stories of the future. And also, you know for the conversion rates, we are seeing the conversion rates from the active users to the number of applications, that's a bit lower than the previous quarters, because if it is not -- it's not online and we also, you know, I have to say, we also put a more stringent financial service provider onboarding rules.

This makes our loan products less than before. So in that sense, if you look into the conversion rate of our business, as I think it's 2 percentage points to 3 percentage points lower than the previous quarter.

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Yes. So, John, I want to just add a one point. The sales and the marketing costs, including traffic acquisition cost, TAC, as well as the staff human costs related to the sales and marketing function, that's -- keep in mind that we do have a fixed cost from Q2 to Q1. I mean, relatively, right? If you look at our tax, traffic acquisition cost divided by sales and marketing, we do see some efficiency increase optimized as well as, of course, the efficiency -- like slow down due to the de-listing of the app. I just want to share with you one number, our repeat -- returning customers, we have seen the number slightly increase in certain segments.

So that's why you don't want to look at the number on average in terms of the ROI. I mean, we do see that there is some decrease in fact here, as well as increase in fact.

Yilu Chen -- Director and Chief Financial Officer

And also to your third question about the cash balance decrease, I think a couple of -- a couple of ways we deployed the cash in the last two quarters. Firstly, I think we -- I think the usage included the share repurchase, and also a couple of investments we conducted in the last two quarters.

And of course, you know, as David mentioned, the operation of cash flow is the outflow given our last meet in the second quarter. I think John I hope this answers your three questions.

John Cai -- Morgan Stanley -- Analyst

Yes, it's really helpful. Thank you very much.

Liting Lu -- Investor Relations Manager

Thank you.


The next question today comes from Wendy Chen with Goldman Sachs. Please go ahead.

Wendy Chen -- Goldman Sachs -- Analyst

Hello, hi David, Oscar and Liting, thanks very much for taking my question. I actually got three questions here. First on our third quarter guidance. Wondering that how do we see the different contribution on the third quarter for loan and credit card? Because in the second quarter, we actually see credit card business is still recorded some year-on-year growth, and of course loan business got more impacted by the [Indecipherable] incident. So just wondering, how is our view for the contribution in the third quarter?

Second question is about our loan -- the loan recommendation price. We noticed that in the second quarter also our loan application number got impacted a lot by the download suspension, but we still recorded quite a valid growth for loan CPA. So just wondering for -- into the second half with the macro headwind we're seeing and probably need to recover from the loan from the app suspension, whether we will see this loan price increasing trend change, but in the second half.

And the third question, probably more on management view for the timeline, like when do we see the full recovery of our business, especially in the loan application business post this app download suspension. Thanks.

Yilu Chen -- Director and Chief Financial Officer

Thank you, Wendy, for your questions. So yeah, let me take -- let me answer the question. Yeah, firstly I think about the loan application unit price, yeah, we see a healthy rise of the loan application -- loan application CPA. So the reason -- the raising is mainly we are seeing, as we discussed in -- earlier this year, so we are seeing the loan products available in the market, has more -- has larger ticket size, longer duration, including the loan products offered by the banks, consumer finance companies and also P2P companies, largest in model micro lending companies, you know of course, the Board we are seeing larger ticket size, longer duration.

So this is -- this is why we are happy to see a price increase starting from the first quarter of this year and it continues into the second quarter. In the second quarter, if you want a breakdown of the loan application volume, so we are seeing over over 50% of our loan application volume with a ticket size over 10K -- RMB10,000 and over 30% of the loan application volume with a ticket size over RMB50,000, and the remaining still the loan size below RMB10 million.

So through the breakdown of the loan size of the applications we hosted on our platform, you are seeing a natural shifting toward the larger ticket size and the longer duration. This is why the CPA, the unit price increased. So we do believe this price trend will continue into the second half of this year.

And then back to our question regarding the contribution of the -- the contribution of between the various business lines. So I think we are seeing a challenge in certain external environment. So in that sense, we are more willing to provide a relatively conservative guidance in this regard. So, for credit cards -- for credit card business, we would estimate volume on par compared to the second quarter this year, so probably you may ask, why is that? Because, you know, entering into the second quarter, we observed a so-called summer slowdown in the credit card business.

So in terms of the -- you know, the delinquency rate of the credit card, you know, I think from the public news, or the public report published by the central bank, it's not worse.

It's almost -- the delinquency rate are also become healthier, at least in the first quarter of this year. But you know, different bank has different strategies among the -- you know, 28 credit card issuing banks, we are working with, we're seeing most of them are still grow their credit card business, but we also see a number of the credit card issuers, they have -- they have more conservative strategy and entering to the second half, they may pull back the scale of their credit card use acquisition.

So this is why we would estimate that credit card volume would be on par sequentially compared to the second quarter.

So, for the big data and the risk management services, I think we would see continuous growth, although it is still a small part of our business. But we -- we would like to see a sequential growth enter into the third quarter. The most uncertain part is the loan recommendation business.

So we just want to put a very conservative number here. So we see the uncertainties, we need to, you know, deal with uncertainties. So from a guidance perspective, we want to be as conservative as we can. So that's pretty much the -- the breakdown we estimated for the third quarter guidance.

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Hi, Wendy. This is David. So in my closing remark, our team, we definitely -- we are maintaining a positive view toward the end of the year and in the medium to long run. We started the business almost 7.5 years ago. If you're using one or two words to categorize the growth of the industry or the Company, since we have the passion. We -- and some day we will present the growth of the whole, we call it -- usually called Fintech sector or the digital, retail financial sector in China. One or two words I would want to characterize spiral rise, spiral growth so means -- and we actually in the last two quarters, last couple of years, we've seen -- we are actually in I would say, we are in the intersection of the two spiral rise or decline. I mean, of course, one of the spiral -- other from the consumer-driven right, is digitalization and also the big secular trend of divulging data and a digital transformation by more and more financial institutions to better serve their customer or manage digital marketing risk management better.

That's the -- probably what I would call like a spiral. Of course on the flip side of the coin, are the downward spiral. I mean, we have seen the macro economy was uncertain, right it will be really uncertain. With the next quarter, hopefully no longer. And we have seen and tightened the regulation. In my overview we have talked about some negative like regulation side, right oh, of course it positive sides. So to be honest, it's hard for us to give a very accurate projection given the spiral rise or the spiral decline or sometimes growth are there, but we are on the wrong side of the spiral, we can't see it.

I asked myself and the team, we always give a very conservative guidance. We have maintained our loan policy and we maintained our appetite. So that's our appetite. I would rather do provide conservative guidance. And if you look at our data in the last five years or six years, which have a meaningful quarterly seasonality data, I can share with you in 2017, '18 and 2015 or '16, in some good years in Q4, we can do around 35, 38. In one year we did about 39% of the businesses, that's that's the seasonality. I mean, we're not saying this seasonality will show up, we are here again, this year. We hope so, but we'd rather provide a conservative guidance. As you may know, the national holiday is coming in about five weeks or six weeks and we would definitely hope things will be better in Q4.

But of course, we haven't factoring those potential upside trends yet. So that's tough, this is a very tough quarter to give any guidance. Frankly speaking, I mean, being -- we've been building this business in the last seven years, eight years as I was in the business world for over -- for close to two decades, right, I've seen two economic crises, U.S. -- the Internet bubble and the financial crisis in New York City.

And at this time, it's different, but Oscar and I and our team would rather be conservative.

I think Wendy, regarding the seasonality, I would also provide a couple of data. You know, definitely, this quarter, we provided a lower guidance. But normally, we look -- if we look into the historical data, normally, because of the seasonality from third quarter to fourth quarter, there will be a sequential growth, naturally into our business, because of the more borrowers activities, and the financial service providers, KPI driven initiative entering into the fourth quarter.

So, in some years we can grow the business sequentially by around 30%, but in the highest year we can -- we also grow the business by 50%, 60% quarter-over-quarter. So I think we hope for the best. But so far, because of the uncertainties and the challenges we are observing, so we may not be able to give a very clear timeline in terms of, so called full recovery.

Wendy Chen -- Goldman Sachs -- Analyst

Thanks very much.

Yilu Chen -- Director and Chief Financial Officer

Thank you, Wendy.


[Operator Instructions]. Our next question today comes from George [Phonetic] with JPMorgan. Please go ahead.

George -- JPMorgan -- Analyst

Hi, management. Thank you for taking my question. I'm George from JPMorgan. So I have two questions. My first one is on the split [Phonetic] power institutions. Could you share with us the application volume in terms of the financial institutions, namely banks consumer finance companies, or some of the P2Ps and how does the trend compare to last quarter?

And my second question will be on our profitability. So I think the last two quarters, we do register some of the profits, and in this quarter we turned into loss again. So how do we think about our profitabilities, earnings in the second half and in 2020? Thank you.

Yilu Chen -- Director and Chief Financial Officer

Okay. Thank you, George. So quick answer to your questions regarding the breakdown of the loan application volume we're seeing. I think during the second quarter, I don't think that you know because of the volume decreased a lot year-over-year, and of course, quarter-over-quarter. I don't think this may be meaningful or have a lot of implication to predict the future, but anyway, the rough breakdown is that we -- the loan recommendation revenue only accounts for less than -- less than one-third, I think 30% of my total revenue. So among that, I think the majority, around 50% to 60% are contributed by the licensed players, that's the banks and the consumer finance companies. And there are many, 40% contributed by the P2P and loan assistance, 2 tier loans [Phonetic]. So that's -- but if you are looking -- look through the lot of business models, the funding behind that is also the license that is positioning the funding. But again, I think it's just the number for the -- for the past two quarter.

And your second question is about the profitability. Okay. Yes, thank you. We always keep the efficiency and the profitability in our mind. I think particularly under the current marketing environment, I think efficiency matters more to us. This is why we conducted some -- a -- post various comments, that's smart growth or smart scale entering into the second half of this year. So this means, we prioritize efficiency and profitability over the scale considering the uncertainties and challenges we are facing in the current market environment. But if you look into our business model, particularly the profitable quarter in the fourth quarter last year and the first quarter of this year, you may notice that the -- if we want to achieve profitability, both scale and efficiency matters.

So given the -- I think, you know, I hope you can understand what I'm saying here. So now we would focus on efficiency over -- over the scale. But to achieve the full profitability, we also need to scale. So, yeah.

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Yeah. Profitability is not a goal, it's a natural result. As we scale our platform, right, we maintain the operating efficiency and profitability will come as a natural result. So that's simple. We maintain our high margin rates, right, and our fixed cost are here, so you have seen, we -- being profitable, we can easily achieve that as [Indecipherable] scale and grow again, it's a smart deal of course.

George -- JPMorgan -- Analyst

Sure. Thank you.


The next question today comes from Julie Hou with UBS. Please go ahead.

Julie Hou -- UBS -- Analyst

Good morning, David and Oscar. Thank you for taking my question. I have one question. As you mentioned, you took some initiative in last quarter, such as organization change and cut low efficiency department. Could you elaborate more on this? Thank you.

Yilu Chen -- Director and Chief Financial Officer

Yeah, sure. So the organization, organizational change here means you know, firstly we formally deployed the deal structure into our business. So which -- well, we can have a more clearer goal for the team to achieve for different business lines.

So because behind the different business lines, the logic, the mindset, the skill set are quite different. I think that the deal structure maybe well support our business down the road for the next three years to five years. And also, because of the new initiatives in terms of category expansion, we discussed in earlier this year. So we reshuffled our internal resources a bit. So for example, like loan recommendation, given that we are -- the skill is not there, so we may have redundancy in terms of the manpower. So we -- but you know R&D guidance are very valuable in this market. So given we also have some new project, new initiatives, so we reallocated the R&D resources among the various business lines.

I think, we don't want to -- although we will keep -- we will keep the efficiency as much as we can, but we don't want to lose the future opportunities. So we also want to invest in people and companies of knowledge, but now the better way is to reorganize in the reshuffle internally to get more results to the future growth. So this is how we mentioned why we call it organizational change.

And also, you're -- about the cutting off the low efficiency business. So as you're aware -- as you may notice that although our sales and marketing -- advertising, marketing and other services, this revenue line grew a bit, but the major contribution was from the big data and risk management services. And our advertising -- pure advertising business was slowed down year-over-year and quarter-over-quarter. So I think as the analysts, that you also observed that overall online advertising, the weak sentiment of the online advertising market. So in that sense, we also controlled the pace, our pace into this market, into this business. So there's been -- particularly in this market environment, the ROI is not that good, so we cut off the -- we slowed down the pace and cut of the size of this business a bit. So I hope this answers your questions.

Julie Hou -- UBS -- Analyst

Yes. Thank you.

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Thank you, Julie.


This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Liting Lu -- Investor Relations Manager

Thank you once again, for joining us today. If you have any further questions, please contact us at [email protected] or TPG Investor Relations at [email protected] Thank you for your attention and we hope you have a wonderful day. Thank you.


[Operator Closing Remarks].

Duration: 67 minutes

Call participants:

Liting Lu -- Investor Relations Manager

Daqing Ye -- Co-Founder, Chairman and Chief Executive Officer

Yilu Chen -- Director and Chief Financial Officer

John Cai -- Morgan Stanley -- Analyst

Wendy Chen -- Goldman Sachs -- Analyst

George -- JPMorgan -- Analyst

Julie Hou -- UBS -- Analyst

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